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Taiwanese Apple suppliers grapple with India's COVID crisis

Foxconn and others repatriate workers amid safety concerns

Taiwanese Apple suppliers have been working to turn India into an alternative production base to China. (Source photos by Reuters and Nikkei)

TAIPEI -- Steven, a manager at a Taiwanese tech industrial park developer, touched down in Taipei on Saturday for the first time since being stationed in Bangalore more than a year and a half ago.

He was welcomed by a recently raised COVID-19 alert and a stint in quarantine hundreds of kilometers from his home -- but it was still better than the situation he had left behind.

"The situation in India really caught me and many of the fellow Taiwanese tech suppliers off-guard. It's unlike a year ago when the governments implemented strict restrictions to prevent the coronavirus spread. It's too fast this time," Steven, who asked that he and his company not be identified, told Nikkei Asia. "Many suppliers I know have been sending their employees back to Taiwan and I, too, told my colleagues to leave soon. I was the last one in my company to go back to Taiwan."

India is in the grip of one of the world's most severe coronavirus outbreaks. Average daily deaths surpassed 4,000 for the seven days through May 19, while confirmed cases have surged from around 12,000 a day in March to over 400,000 a day this month.

In addition to the massive human toll, the pandemic is causing chaos for Taiwanese companies that have been expanding in the country in hopes of building an alternative production base to China.

On May 10, Taiwan's foreign ministry issued a message encouraging its citizens to leave India due to the worsening COVID-19 situation. Like Steven's company, many Taiwanese tech suppliers have responded to the warning.

Foxconn, which has manufacturing facilities in India, is among them. It dispatched a Gulfstream jet to repatriate around 10 Taiwanese employees from Chennai last Wednesday evening and said it would try to help more employees fly back to Taiwan or China upon request, the company told Nikkei Asia.

"Foxconn executives are having meetings over the dynamic situation in India on a daily basis. The sharply worsening situation there will impact the production activities more or less, but nothing trumps the safety of the employees," a person with direct knowledge of the company told Nikkei.

Foxconn was one of the first large contract electronics manufacturers to respond to Prime Minister Narendra Modi's "Make In India" initiative in 2015. The company has plants in Andhra Pradesh and Tamil Nadu, and helps smartphone makers like Xiaomi produce Android smartphones and smart TVs for the local market. It also helps Apple, Foxconn's largest client, to manufacture iPhones in India.

"The scale of the [iPhone] production in India is still relatively small. We can always quickly adjust our capacity in China, which has COVID-19 well under control, to catch up [on] the gap in India," the person said.

People wearing masks wait to receive their second dose of COVID vaccine in Kolkata, India, on May 12. The country is in the grip of a spike in infections.    © Kyodo

Wistron, a smaller iPhone assembler, has a manufacturing facility in Bangalore, while Pegatron, the largest iPhone assembler after Foxconn, is building its first Indian manufacturing facility in Chennai and is expected to start a small volume of production before the end of this year. China's Luxshare, a rising competitor that went into iPhone assembly late last year to challenge Foxconn, is also building a plant in the same state, Nikkei learned.

India is on track to become Apple's largest iPhone manufacturing hub outside China, having benefited from the intensified Washington-Beijing trade war in the past few years.

But the recent spike in COVID cases, coupled with other challenges such as complex local regulations and an unfamiliar regulatory environment, are frustrating those ambitions.

An executive with Holtek Semiconductor, a Taiwanese microcontroller chip developer which operates an office in India, underscored some of the challenges.

"The investment environment in India is still a very big concern, its medical system and its infrastructure are still lagging behind, plus the COVID-19 situation is really still a big headache," the executive said. "It was once a market that we hoped to focus on and expand, but after a couple of years we feel like it's not as easy to expand there given the infrastructure... I would suggest people who don't have immediate need to expand business there to give it a second thought if they are betting big on India."

The Holtek executive said two of the company's six employees at its India office had contracted COVID-19 but later recovered. In China, where his company has several hundreds of employees and its distributors employ up to 1,000, "no one has contracted the virus," he said.

Analysts say it is too early to say whether the coronavirus disruption will affect companies' long-term planning.

"According to our supply chain checks, the serious COVID condition in India may drag or delay expansion plans by some of the tech players," said Eric Tseng, CEO and lead analyst of Isaiah Research. "However, a lot of tech companies have already formulated investment plans in India according to their clients' wishes and made those plans for long-term strategic purposes. So far, we haven't seen significant turns or dial-backs from these investment plans. But all these investments are subject to geopolitical and economic considerations."

In addition to India, Vietnam and Taiwan have also benefited from the U.S.-China trade war, which has led many tech manufacturers to shift some of their capacity away from China over the past three years. These include Foxconn, Pegatron and Wistron, as well as key Google and MacBook maker Quanta Computer, and Apple Watch maker Compal Electronics.

China's rising contract manufacturers, such as Luxshare and GoerTek, also have been aggressively building their capacity in Vietnam and India at the request of Apple and other clients.

But Vietnam and Taiwan are also fighting a sudden surge of local cases.

The government of Bac Giang Province -- one of the rising tech manufacturing hubs in Vietnam -- recently halted operations at four industrial parks after the country was hit by a new wave of COVID-19 infections that began in late April. Foxconn, AirPods assemblers Luxshare Precision Industry and GoerTek all have manufacturing facilities in the province.

Foxconn confirmed to Nikkei Asia that its plants in Bac Giang -- owned by its subsidiary -- have temporarily closed upon the request of the local government, while its factories in neighboring Bac Ninh Province remain open.

In Taiwan, meanwhile, the daily local confirmed cases went from single digits to 180 on Saturday, to 206 on Sunday and 333 on Monday. New cases every day this week surpassed 200. Level-three COVID restrictions were extended from Taipei and New Taipei to the entire island on Wednesday, meaning indoor gatherings of more than five people are banned, as are outdoor gatherings of more than 10 people. And on Thursday, the government ordered companies to postpone their annual shareholders' meetings until July 1 or later -- AGM season was set to kick off next Monday.

Key iPhone camera lens supplier Largan Precision has had a Taichung-based employee test positive, but stressed the case will not affect its daily operation.

Taiwan Semiconductor Manufacturing Co., the world's biggest contract chip manufacturer, has instituted a work-from-home rotation among its employees and is discouraging employees from traveling between TSMC's factories in Hsinchu, Taichung and Tainan. Other companies, like MediaTek, are also encouraging employees to work from home.

Taiwan's local outbreak came as the world is facing unprecedented chip and component shortages and the island's semiconductor supply chains play an irreplaceable role to ease the crunch. The country is also in the grip of its worst-ever drought and suffered two largescale power outages in less than a week, due to a malfunction on the power grid and increased power consumption due to warmer-than-expected weather.

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